As the video games industry hurtles towards digital, Nintendo has proven to be uniquely resistant to the trend as it uses decades of retail expertise to champion physical game sales.
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While physical game distribution is still an important part of the gaming market, most developers and platform-holders prefer digital’s higher margins, controlled deployability, and consumer convenience factor. Xbox in particular has made significant strides towards all-digital with its decisions to pull down physical copies of games from store shelves. But Nintendo doesn’t want to buck the status quo–there’s still billions to be made from physical game sales, provided your operations are efficient enough to handle the costs and flexible enough to bend certain trends.
Nintendo’s latest Q3 results show that physical gaming is still a very important part of the industry. The company made $2.036 billion from software in Holiday 2023, down nearly $300 million and reflected by a year-over-year game sales decline of about 10 million.
Of that amount, 55% or $1.122 billion was from physical game sales. The remaining 45%, or $914 million, was from digital–bear in mind that digital includes all forms of revenues from the medium, including in-game purchases, full game sales, and subscription monetization from Switch Online.
We can cut even more closely at this mix. Nintendo reveals that about $446 million of the total digital revenues were made from content that is only available through digital channels–Switch Online, microtransactions, etc.
This further highlights just how much more popular physical games are than digital games for the Nintendo Switch platform, which incidentally has become the top-selling console family of all time.
Nintendo President Shuntaro Furukawa explains:
“Digital sales through the third quarter increased by 11.7% year-on-year to 346.4billion yen and accounted for 48.1% of total software sales for our dedicated video game platform.
“Downloadable versions of packaged software for Nintendo Switch like The Legend of Zelda: Tears of the Kingdom sold well, and sales also increased for Nintendo Switch Online and for add-on content such as The Hidden Treasure of Area Zero for Pokémon Scarlet and Pokémon Violet. Furthermore, the increase in foreign currency-denominated sales due to the depreciation of the yen contributed to the rise in digital sales, helping to raise the proportion of digital sales year-on-year.”